Bruce Berkowitz Sells Half His Regions Financial Corp. Stake

Bruce Berkowitz, founder of Fairholme Capital Management, has sold half of his stake in one of his financial holdings, Regions Financial (NYSE:RF). He cut 63,319,720 shares at $3.60 a share, or a total value of $227,950,992. Regions Financial Corporation is a regional bank holding company and has banking-related mortgage, credit life insurance, leasing and securities subsidiaries in the South, Midwest and Texas. Over the last 10 years, Berkowitz returned 196% compared to the S&P500’s 16.4%. This year, he has 70% of his portfolio in undervalued financial stocks, but his hoped-for economic recovery has not materialized, leaving his fund down 21.5% as of September.

He bought 43,363,404 shares of Regions for an average price of $5.41 a share in the fourth quarter of 2009. He added 32,452,110 more in the next quarter at an average price of $6.73. He initially made a profit, selling portions in the next two quarters when the price rose. When the stock backtracked to $6.47 in the fourth quarter of 2010, he bought 52,730,800 more shares. He trimmed some of the holding in the next two quarters when the price advanced slightly.

Year to date, Regions Financial stock is down 45%, suffering particularly in August and September. It trades for $3.85 on Wednesday, after trading above $30 in the years leading up to the financial crisis.

Regions Financial’s revenues have weakened each year since 2007. The Federal Deposit Insurance Corporation has said that banking institutions have posted weaker revenue but higher profits recently due to stronger balance sheets and better capital positions. Banks it insures posted $28.8 billion in net income from April to June, a 38% increase.

The Paragon Report said in September that Regions’ is benefiting from “improving credit which allows them to release loan loss provisions to earnings” and its “loan-loss provisions were reduced to $398 million from $651 million a year earlier. Net charge-offs were 2.71 percent of average loans, compared with 3 percent a year ago.”

The issue with Region is their efficiency ratio is quite high about 80-90%. In last few years, provision for credit losses have halved but they still struggling to increase their earning. I don't expect provision of credit losses to come down dramatically going forward; son only way to increase profitability is to reduce non interest expenses.

Having said that they are currently trading @ about half the value of cash and cash equivalent. Its quite quite appealing at this price.

I think it was in one of Wolinsky's posts on notes from Baupost shareholder meeting that said they look for undervalued stocks forced sold by mutual funds. This would be one of those forced sold by a value investor giving it an even steeper discount.

@Superguru, Bruce's favorite stock is certainly BAC and perhaps C and AIG coming in after that. I believe he said there is some rule that prevents him from owning more BAC or C than he already has. And you see him buying BAC and C in his "income" fund even though they are not big dividend yielding stocks. So he has huge conviction in those two. Time will prove whether he is correct or not, but I'm guessing you'll see him sell other positions, such as RF, and keep BAC.

I bought FAIRX in 2005, reinvested cap gains and divvy's, I haven't lost money. His fund's performance is an exaggerated version of the major indexes. Just like the Russell 2K. Hell, even SEQUX's performance is correlated to market returns. These people come out ahead in the long run if they can outperform on the downside. Bruce did so mightily in 2008, that's how he got so damn famous and why so much hot money ran into the fund. So now karma is kicking his ass, but that doesn't change the fact that financials are cheap. Value investors buy what's cheap and wait for a reversion to the mean.

Joe DiMaggio wasn't a bum on the 57th day and Bruce Berkowitz, Ruane Cuniff, Buffett and others aren't idiots just because they underperform for 6 months. (Back in the dot com days of the mid to late 90's everybody and their brother said SEQUX and BRK were idiots who were out of step with the market)

@Superguru, Bruce's favorite stock is certainly BAC and perhaps C and AIG coming in after that. I believe he said there is some rule that prevents him from owning more BAC or C than he already has. And you see him buying BAC and C in his "income" fund even though they are not big dividend yielding stocks. So he has huge conviction in those two. Time will prove whether he is correct or not, but I'm guessing you'll see him sell other positions, such as RF, and keep BAC.

It isn't what you or I have done that I point out. It is when the great majority of his money came in - and a large percentage of that evidently has left. The big percentage gains were from the low portfolio value era and the outsized losses from the big portfolio of recent times. I might even, if I wanted to spend the time, find that the fund has lost as much in one or two stocks as it made over its entire lifetime. I have done very well with the fund.

no argument there. I'm a huge fan of Jack Bogle and the overwhelming majority of my money is invested in VTWSX and VBMFX (35% each). I just wrote an article for this site extolling the virtue of buy and hold.

I misunderstood your article. I misunderstood some of your comments. Like when you used all caps to describe the GREAT Bruce Berkowitz. It comes across as condescending. I failed to draw the obvious lesson about active management and star managers. Yes, the majority buy at the top and sell at the bottom. If you think about it, its axiomatic. A market top is by definition the height of investment inflows. If either of us were Bogle purests we wouldn't be caught dead on a site called "Guru Focus". So it is obvious you don't believe its a losers game, or you wouldn't invest the time to follow the markets and write about it.

There have been real Star Managers and will continue to be, and small timers like me will continue to follow them and invest with them. Lynch, Buffett and Cunniff proved their merit over the decades and it is far to early to pass judgement on this generation (Berkowitz and Lampert in particular went from hero to zero based on one idea (financials/Sears)).

Did you read The Big Short? Remember Michael Barry went short mortgages in 2006. He was so ridiculously "wrong" for two consecutive years that Joel Greenblatt led an investor revolt. Part of investing is that we keep a scorecard, money, and its easy to tell who's right and who's wrong at the end of the game.

Yes I've read The Big Short. I have also recently told friends that I'd bet a small amount of money that from here (a month ago or so) I'd bet Fairholme would do relatively well in comparison to various market indexes.

I guess the GREAT thing is just my way of saying investments/guru's are only great if their investees know that "when" and "starting point" matter greatly. And likely the best time to buy won't be we have their stuff plastered all over the web.

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